Delay in VAT Payment Proves Costly
Companies are often tempted to delay making larger payments, such as tax, until the last possible moment. However, the dangers attached to such a strategy can be significant. In one cautionary tale, a newspaper publisher was hit with a £70,000 penalty after putting off paying its VAT by a single day.
The publisher paid a VAT bill of more than £3.5 million in full, but one day too late. HM Revenue and Customs (HMRC) responded by levying a penalty of £70,906, representing 2 per cent of the overall bill. The First-tier Tribunal later overturned the penalty, ruling that it was disproportionate.
However, in allowing HMRC's appeal and reinstating the penalty, the Upper Tribunal found that, although it might be considered harsh, it was not plainly unfair. Although the penalty might be viewed as large in absolute terms, it was not arbitrary in that its size was dictated by the amount of the overall VAT bill. The mere fact that payment was delayed by only 24 hours did not render an otherwise proportionate penalty disproportionate.